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Beach Energy to more than double with $1.585b Lattice Energy purchase

Beach Energy to more than double with $1.585b Lattice Energy purchase

Beach Energy has charged into the major league in the east coast gas sector, inking a $1.59 billion deal to buy Origin Energy's conventional oil and gas
business in a move that also advances the energy ambitions of 23 per cent shareholder Seven Group Holdings.

The deal, which will more than double the mid-cap oil and gas player's production and treble reserves, trumped Origin's alternative plan to float Lattice
Energy, which some investors had always seen as unlikely.

Origin will use the proceeds to pay down another chunk of debt, which is now expected to be under $7 billion by mid-2018, from over $12 billion in 2015.

While the price was described as "pretty ritzy" by one analyst, the transaction is backed by gas sales contracts between Origin and Lattice that lock in
gas price increases for at least the next three years.

Seven Group chief executive Ryan Stokes, a Beach director, described Lattice as "a really strong fit" for Beach with its range of assets that diversifies
its production and reserves.

It also reinforces Seven's strategy of expanding in energy as it rebalances its business to de-emphasise its traditional powerbase of media and building
out petroleum and industrial services.

"Seeing Beach get bigger is a key focus for us," Mr Stokes said, adding that backing the Beach bid is an effective way for Seven to participate in the
evolving east coast gas market "in a meaningful way".

Beach chief executive Matt Kay described the acquisition as "transformational" for Beach, enhancing its growth opportunities and adding offshore and overseas
fields to a portfolio currently limited to central Australia's Cooper Basin.

As Beach was the front-runner to buy Lattice, the deal was largely expected. But Dermot Woods, at Westoz Funds Management, said it was "good to have the
certainty out there", and to have indications of the gas prices in the supply contracts between Origin and Lattice.

While both parties declined to reveal the price of the contracts, Mr Kay said it was higher than Beach's average realised gas price in 2016-17 of $6.10
a gigajoule. The tariff would increase in three annual step-ups, linked to the inflation rate, then move to "market prices".

"One can assume they are going to have a rising gas price for the next four or five years," Mr Woods said. "Name another commodity company you can say
that about."

Mr Stokes said Origin's keenness to get security of supply and certainty over gas prices worked in favour of the funding structure.

"That enables you to use leverage because you take the commodity risk out of it," he said.

Beach will take on up to $1.58 billion of new debt, from ANZ, CBA and Credit Suisse, to help fund the deal and provide working capital, while some existing
debt will be refinanced.

Gearing will jump towards 35 per cent, but should be under 25 per cent by mid-2019 and Beach could be net cash by mid-2021, Mr Kay said.

The shares will be sold at 75¢ apiece, a 9.1 per cent discount to Wednesday's close. Beach stock was halted from trading for the institutional part of
the 3-for-14 rights offer.